Markets and Currencyhttp://www.newstatesman.com/taxonomy/term/4189/all
enFarewell to the shady business of the London gold price fixhttp://www.newstatesman.com/economics/2015/04/farewell-shady-business-london-gold-price-fix
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"> <p>An insight into gold fixing and why it's come to an end after nearly 96 years.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/blogs_2015/04/124366060.jpg?itok=nwAqogXI" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">London gold fixing is officially dead. Photo: Getty</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Imagine you were tasked with designing a process to calculate the price of gold. Imagine, too, that the year is 1919; you are attempting to re-establish London’s reputation as an international financial centre after the First World War. Given the situation, the following solution may have seemed reasonable: first, request that the cigar-smoking, bowler-hatted representatives of five bullion dealers and banks congregate in the wood-panelled boardroom of N M Rothschild &amp; Sons on St Swithin’s Lane. Second, leave them alone to discuss whether they have more net interest in <em>buying</em> gold, in which case the previous day’s price increased, or in <em>selling</em> the 400-ounce bars, a signal to reduce the value. Third, request that the final price be made known to the public.</p>
<p>The “London gold fixing”, which ended last month after nearly 96 years, placed an extraordinary amount of trust in the bankers who ran it. The system was opaque and unregulated but it was also simple and efficient. The mining companies, banks and jewellers that used the twice-daily benchmark to trade and value their gold stocks were happy, so there was little pressure for reform. In 2004, when the five fixing banks agreed to confer in a private teleconference rather than in person, the tradition of raising a small Union Jack to pause proceedings – “Flag up!” – became obsolete. But the mechanics and opacity of the fix remained intact.</p>
<p>Then came the 2008 financial crisis and evidence that traders had manipulated foreign-exchange and interest-rate benchmarks for their own gain. Suddenly the idea that a handful of investment banks – Barclays, Deutsche Bank, HSBC, Société Générale and Bank of Nova Scotia – should be allowed to set the benchmark for gold, an important part of the $18trn-a-year bullion trade, seemed old-fashioned at best. You did not need to be a conspiracy theorist – and the gold investor community includes many – to see how the fix might have been open to abuse.</p>
<p>Financial regulators in the US and Europe started to look closely at precious metals benchmarks. American class-action lawyers launched suits alleging rigging. Last year, Deutsche Bank put its once valuable fixing seat up for sale and then resigned it when it found no takers. A month later, in May, the Financial Conduct Authority (FCA) fined Barclays £26m after one of its traders manipulated the benchmark. It was clear that the fix was dying.</p>
<p>“This was an archaic mechanism dating back nearly a century,” says Brian Lucey, a professor of finance at Trinity College Dublin. “It was not something you would have devised if you were starting today.” And so, at 3pm on Thursday 19 March, the remaining four banks dialled in to their conference call for the last time, setting the price at $1,166 an ounce. The London gold fixing was officially dead.</p>
<p>The new benchmark, the London Bullion Market Association Gold Price, is electronic. It is administered by the Intercontinental Exchange, owner of the New York Stock Exchange, and is regulated by the FCA. The fixing banks will still do the trading, along with UBS, JPMorgan and Goldman Sachs. Banks from China, a big gold market, may soon join. Transparency and oversight will be improved, with a full audit history available for the first time.</p>
<p>“This should give people more comfort that it’s a true benchmark price for gold,” says Lucey. “But unmanipulable? If human ingenuity wants to find a way, it will.”</p>
</div></div></div>Thu, 16 Apr 2015 14:13:26 +0000Xan Rice227007 at http://www.newstatesman.comThe Pfizer / AstraZeneca takeover bid – the story of what Labour did and whyhttp://www.newstatesman.com/politics/2014/05/pfizerastrazeneca-takeover-bid-story-what-labour-did-and-why
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"> <p>
We were not prepared to allow Britain's valuable science base to be put at risk for narrow, short-term gains.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/blogs_2014/05/488569047.jpg?itok=6nPtM1Nd" width="510" height="348" alt="We were not prepared to allow Britain&#039;s valuable science base to be put at risk for narrow, short-term gains." title="The sign for the UK commercial headquarters of pharmaceutical firm Pfizer at Walton Oaks near Leatherhead. Photograph: Getty Images." /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">The sign for the UK commercial headquarters of pharmaceutical firm Pfizer at Walton Oaks near Leatherhead. Photograph: Getty Images.</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>
Pfizer’s audacious bid to takeover AstraZeneca is dead for the moment. Had Pfizer succeeded, it would have been the largest takeover in UK corporate history. Whatever impact the deal would have had on the two companies involved, it would have also had profound implications for British science, exports and jobs in one of the most important sectors of our economy. As well as important private interests being at stake, there were also clear and distinct public interests in the deal. </p>
<p>
Having been engaged with many of the principle actors in this drama – from the chief executives and boards of both companies to key figures from across British industry – I became convinced that this takeover was being pursued for the wrong reasons, that it would be bad for AstraZeneca, and that it would be bad for Britain. </p>
<p>
I am pleased that the AstraZeneca board remained clear-headed in the face of intense pressure and that, in this case, it was the board that rebuffed the offer. I remain of the view that, for the most part, it should be the existing owners of a company – the shareholders and their agents – who should determine future ownership. Here the system appears to have ‘worked’.</p>
<p>
However, there is more that can be done to support greater rationality in the conduct of takeovers. It is why Labour would introduce reforms to ensure that, once announced, takeovers do not generate their own unstoppable momentum – from carpet-baggers buying shares or from advisers who stand to gain from the deal – but are always decided in the long-term interests of the company. </p>
<p>
It is why we will clarify the legal protection boards have to make decisions based on what they think is best for the long-term health of the company, not just on the value of the offer on the table. </p>
<p>
The experience has also confirmed in my mind the need to review the legal framework governing takeovers so that legitimate public interests in exceptional transactions of this kind can be properly taken into account where they are not aligned with private interests. </p>
<p>
Our world-class science base has taken many years, and much public and private investment, to develop. It is from this base that we can secure more of the well-paying jobs that generate broad-based prosperity and a stronger, better balanced economy. It is a national asset, a public good as critical to our economic future as our physical infrastructure. So a Labour government would not stand back and allow this source of long-term competitive advantage to be put at risk for narrow, short-term gains. </p>
<p>
That is why we would change the law so that, should the need arise and as a clear signal to all, it is not left unprotected any longer by extending the grounds on which ministers can block a transaction in the public interest to cover exceptional deals which would have a material adverse impact on the UK's science and R&amp;D base. We would set up a standing body of scientists and business people to provide an independent assessment to Ministers and, if the advice were that the proposed deal would have a material adverse impact, a Labour government would block the transaction.</p>
<p align="center">
~</p>
<p>
So this is the story of how and why we reached the view that the proposed takeover of AstraZeneca deal should be subject to such a public interest test on the grounds that it posed a real risk to our national economic interest. It is the story of how the government misjudged the situation, was seduced into becoming cheerleaders for a deal which ministers mistakenly viewed through a narrow, political lens as an endorsement of their tax policy. It is also about how Labour and others helped energise a broad coalition of voices from across politics, business and science to raise legitimate questions about the deal for the companies involved as well as for Britain.</p>
<p>
Before the arrival of the current CEO, Pascal Soriot – a biologist – in 2012, AstraZeneca had been somewhat struggling. Patents on a number of existing drugs were set to lapse and the pipeline of new drugs did not look promising. But since then, the company’s fortunes have experienced a sea change. Soriot has focused on simplifying the organisation, and as the true potential of its drug pipeline has become apparent its stock has risen in value by 40 per cent in the last six months.</p>
<p>
In November 2013 Pfizer’s chairman and chief executive Ian Read made an initial approach to AstraZeneca’s chairman Leif Johansson. Pfizer subsequently made a more formal approach on 5 January 2014, valuing the company at around £60bn. A week later the AstraZeneca board rejected the offer as “very significantly” undervaluing the company, offering too little cash (30 per cent), and being too risky in terms of execution.</p>
<p>
Like many, first became aware of Pfizer's courting of AstraZeneca when the original story reporting that approaches had been made appeared in the <em>Sunday Times</em> on 20 April, Easter Sunday. The significance of this potential transaction was not lost on me. The £60bn price tag would have made it among the largest transactions in UK corporate history. </p>
<p>
On 26 April, Pfizer made a second approach, which was also rebuffed. With the deadline imposed by the City Code on Takeover &amp; Mergers fast approaching, Pfizer made two further offers on the weekend of 17 May, eventually valuing the company at almost £70bn in what was a final offer. Again, these offers were rejected by the AstraZeneca board without reference to shareholders. Under the Code, Pfizer then had until 26 May to 'put up or shut up' with a firm offer.</p>
<p>
The significance of the deal went far beyond the price tag. The potential transaction went to the heart of the debate about the quality of jobs in the UK and the need to reform our economy so it is better balanced and more sustainable in the long term.</p>
<p>
We must build an economy that gives everyone a ladder up to get on and meet their dreams and aspirations. That is not the kind of economy we have right now. We are a country of great promise with an abundance of talent but our economy is simply not producing enough of the high paid, high skilled jobs to meet those aspirations, raise living standards, and make people's dreams a reality. Of course, any job is better than no job but a good job that is secure and pays a wage you can live on is better still. There are only four other countries in the OECD with a higher share of low-paid jobs. To change this and to generate more, better-paying jobs we must grow our world-leading and innovative sectors, like pharmaceuticals.</p>
<p>
When people ask me on the doorstep what we are hoping to do to help their children to go on and do better than the older generations in their family, I want to be able to point to companies like of AstraZeneca as the vehicle through which we can achieve this brighter future. As a company, it accounts for 3 per cent of our manufacturing exports, directly employs around 6,700 people, and supports many more thousands of jobs indirectly through an extensive supply chain. As a share of its overall revenue, in 2013 AstraZeneca spent almost 50 per cent more on research and development than Pfizer. It is companies like AstraZeneca which will provide the opportunity for our children – not only to go on and do well for themselves, but to make history playing a part in producing life saving drugs. So we need a business environment that nurtures more firms like AstraZeneca, not fewer.</p>
<p>
When I heard of Pfizer’s approach on Easter Sunday, the fact it was a US company was a complete irrelevance. Having visited Jaguar Land Rover's Gaydon plant and other foreign owned UK operations, I have seen for myself successful British companies thriving under foreign ownership. The question was whether the purchase – foreign or otherwise – of AstraZeneca would strengthen the company over the long-term. Would it help grow our world-leading pharmaceuticals industry and would it expand our research, science and skills base? If not, would it have such a material and adverse impact on our economy that it would necessitate government action to safeguard the national economic interest? These were the questions we sought answers on from scientists, business leaders, and Ministers alike.</p>
<p>
Before coming to a view, I spoke to leading people in the sector and British business, including both firms involved with the deal, first Pfizer then AstraZeneca. Ed Miliband and I met Pfizer’s Ian Read after his appearance before the BIS select committee on 13 May and I met AstraZeneca’s Pascal Soriot the day after following his appearance at the Science and Technology select committee. Industry groups in the pharmaceutical sector were not able to express a public view, given the need to be neutral as regards their members. But privately many expressed concerns to me about what was proposed – nobody positively made the case for the deal to go ahead. </p>
<p>
What perhaps surprised me most were those who would not usually argue for government involvement in the economy who were now vigorously making the case to me that the government should act to safeguard the national economic interest in this case. Others urging action included the leading businessman and former Science Minister, Lord Sainsbury, who went public with his concerns, as did the former CEO of Standard Chartered Bank, Lord (Mervyn) Davies. Lord Heseltine expressed his reservations too, along with the Chief Executive of Aberdeen Asset Management. </p>
<p>
There has been an attempt by people in government to paint those raising objections as protectionists or advocates of a 1970s style socialism - but this had no credibility given the record of the individuals concerned who were raising the alarm. They are no more 1970s-style socialists than those advocating a laissez faire approach to the deal are anarchists. The Director General of the British Chambers of Commerce, John Longworth, put it well when he said: “we must remember that there’s a lot more to being an open economy than saying ‘yes’ to every takeover”.</p>
<p>
Then there was Pfizer's record of acquiring other companies, intellectually asset-stripping them, cutting R&amp;D spending, and shutting down research facilities with large consequent job losses. This was the experience at Warner-Lambert and Wyeth in the US and at Pharmacia in Sweden since 2000. I know this because during the course of this story, I spoke on the phone with my SPD colleagues in Sweden who outlined to me the devastating impact Pfizer's actions at Pharmacia had had. Despite paying in excess of $200bn for these acquisitions, the entire market valuation of Pfizer now stands at substantially less, suggesting significant value destruction or extraction. This did not inspire confidence, especially when taken together with Pfizer's actions at its historic research facility in Sandwich, Kent – which developed Viagra - where jobs were cut in 2011.</p>
<p>
So the worry in the science and business community in light of all this was for the long term future of the company and the sector. In spite of this, the initial response of the government looked to the short term. It seemed that the prospect of being able to boast of bringing one of the world's largest companies on to the Exchequer's books in the clouded their judgement on the longer-term consequences of the deal.</p>
<p>
Sources close to George Osborne had said the bid was "a massive vote of confidence" in the UK and Grant Shapps said the takeover could be "a great Anglo-American tie-up". Treasury Minister David Gauke said the deal showed how, "[t]he UK is now very much top of the list for foreign companies looking to increase their activity in the UK.”</p>
<p>
In his eagerness to take ownership of the deal as an endorsement of government policy, the media were briefed that the Prime Minister had appointed Cabinet Secretary Jeremy Heywood and senior Treasury official John Kingman to “negotiate” with Pfizer. In doing so, it both undermined the AstraZeneca board who had so far rebuffed Pfizer and gave the impression that the government were driving the deal. Ed Miliband’s accusation that David Cameron was “cheerleading” for the takeover at PMQs on 7 and 14 May clearly hit home, and this impression was reinforced when AstraZeneca Chairman Leif Johansson was reported to have asked the government to take a more neutral stance.</p>
<p>
In seemingly promoting the deal, the government found itself out of step with the business and science communities, and on the wrong side of the argument. Ministers also failed to appreciate the extent to which the desire to use tax inversion in the US was driving the deal – tax inversion being a loop hole in US law where a company can re-incorporate overseas in order to reduce the tax burden on income earned abroad. Ian Read – who started off in the accounts department at Pfizer – admitted in his evidence to the BIS select committee that one of the principal rationales for the deal was tax planning. Sir David Barnes, former CEO of AstraZeneca, put it well in an email he sent to myself and the Business Secretary when he said: “whilst all companies should manage their tax affairs efficiently, tax should not be the driving imperative for such a transaction. Whilst there is potential (substantial) tax advantage for Pfizer through tax inversion, that is a narrow basis on which to build an enduring and constructive business partnership”. I had made the same point I had in exchange I had on the deal with the Science Minister David Willetts on the <em>Today </em>Programme.</p>
<p>
Pfizer asserted at the Select Committee hearing on 13 May that the US was unlikely to act to end the use of tax inversion. No sooner did they do so than numerous powerful US senators – Democrat and Republican – were demanding action to stop it the day after. Now, Michigan Democrat Senator Carl Levin has introduced a bill to place a moratorium on corporate inversions for two years while the US tax code is reformed.</p>
<p>
The 26 May deadline has now passed and AstraZeneca has fought off the current threat from Pfizer. Under the rules, Pfizer will be prevented from making another attempt to buy AstraZeneca for at least another six months. But others may try before that, and the threat of similar takeovers in the pharmaceuticals sector and elsewhere in the future always remains.</p>
<p align="center">
~</p>
<p>
Britain has benefited enormously from inward investment which – along with the money – has also brought new ideas and ways of working to our shores. We must remain resolutely open to business and as an attractive destination for investment – not as a global tax-avoidance wheeze, but because of the positive benefits we offer innovative companies.</p>
<p>
And we must be hard-headed about this. We want to generate the jobs of the future and make the UK an investment destination for all the right reasons. To do this we must continue to invest in our science base, improve our skills base, and develop our innovation eco-system. But if we are making these investments, we must also ensure that the right legal framework exists that can preserve the benefits of these investments – not just for next company passing, but in perpetuity.</p>
</div></div></div>Tue, 27 May 2014 09:25:25 +0000Chuka Umunna202073 at http://www.newstatesman.comWhile Ukraine's political situation remains uncertain, its economy teeters on the brinkhttp://www.newstatesman.com/business/2014/02/while-ukraines-political-situation-remains-uncertain-its-economy-teeters-brink
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>If the political instability is not reined in soon enough, the currency will spiral out of control.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2014/467533437.jpg?itok=gQ6_JOQa" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Anti-government protesters on a barricade in Kiev on 7 February, 2014. Photograph: Getty Images.</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>As the protests in Ukraine have escalated over the last three months, President Viktor Yanukovych has appeared progressively weaker. The timing of his sick leave last week could not have been more apt. The president has now offered a raft of substantive concessions in a bid to appease the protesters, not least the chance to lead a new cabinet, but in every instance he has been rebuffed. His subsequent decision to take leave was a signal that his options have rapidly reduced.</p>
<p> The government’s resignation was a serious blow to Yanukovych’s legitimacy. Without a cabinet underneath him he has become an isolated figure. The opposition recognises this and in the ensuing negotiations will maintain their stance of demanding early presidential and parliamentary elections.</p>
<p> As a western observer, one could be forgiven for thinking that there is an overwhelming majority of Ukrainians in favour of EU integration, with Vladmir Putin and Yanukovych the only figures standing in their way. But in reality the country is bitterly divided: Western Ukraine has very strong cultural and linguistic ties with Russia, and its inhabitants are deeply concerned about the impact of competition from the EU on its dilapidated, yet important industrial sector. Even the opposition is not unified, and it is difficult to reconcile the views held by the far-right nationalist party, Svoboda (which is at the vanguard of the current movement), with the EU’s supranational mantra. In any case, an election held in the current atmosphere would surely serve as a <em>de facto</em> referendum on EU integration, but it would undoubtedly be a close-run contest.</p>
<p> While Ukraine’s future continues to be contested, its economy teeters on the brink. So far Russian bond purchases and gas price concessions have provided a financial buffer, but if Yanukovych’s grip on power is eroded further and an opposition-led government becomes more likely, this support could be revised and potentially withdrawn. The EU would not be able to step in without major political reforms inside the country and in the meantime bond yields would rise amid sustained downward pressure on the currency.</p>
<p>Moody’s have already downgraded Ukraine’s sovereign rating to Caa2 with a negative outlook, citing growing strains on liquidity caused by the surging demand for dollars as the domestic population seek to convert their savings. On 31 January the hryvnia fell 2.5 per cent against the dollar – the largest single-day loss in almost five years. This is of significant concern, as with a USD15 billion loan from Russia, the government had spent several weeks using its financial reserves to prop up the country.</p>
<p> As the central bank has scaled back its commitment to maintaining a dollar-peg, this downward pressure is manageable in the short-term. Within the context of low inflation and slow export growth, it could even provide a boost. The danger, however, is that if the political instability is not reined in soon enough, the currency will spiral out of control, placing increased pressure on the corporate and financial sectors so as to impinge on their ability to service foreign debt.</p>
<p> The insurance market is acutely aware of this risk, and accordingly, capacity for credit cover on Ukrainian counterparties is exceedingly tight. It is set to remain so for the rest of Q1 and beyond.</p>
</div></div></div>Fri, 07 Feb 2014 15:50:52 +0000Elizabeth Stephens200383 at http://www.newstatesman.comOsborne and Carney should enjoy their day in the sunhttp://www.newstatesman.com/business/2013/12/osborne-and-carney-should-enjoy-their-day-sun
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>The UK fast becoming a stand-out developed economy performer. Growth is heading into 2014 at a healthy 3 to 4 per cent, even in the face of Osborne’s austerity.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/182595413.jpg?itok=jNFbwMsO" width="510" height="348" alt="George Osborne." title="George Osborne." /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Mr Osborne is starting to look pretty lucky. Photograph: Getty Images.</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>If last week’s markets were quiet and range-bound due to Thanksgiving celebrations and a paucity of frontline data, this week could hardly present a more different proposition. Monday saw a strong US Manufacturing ISM survey, and yesterday the RBA decided to sit on its hands, but the committee was once again at pains to point out that they view the AUD’s strength as "uncomfortably high", with a "lower level of exchange rate likely to be needed to achieve balanced growth in the economy". They also highlighted that "public demand is forecast to be quite weak" and "considerable uncertainty surrounds this outlook" (for a pick-up in activity). More rate cuts are coming in Australia as Asia slows. The RBA are very perceptive - they realise that the Chinese 3rd plenum, although very constructive in the medium-term (10-20 years in Chinese terms!) implies slower growth in the short-term, as the economy rebalances away from export-fest to the kind of consumer-lead growth that is all too familiar to us in the UK.</p>
<p>We are entering a dangerous era of change for global growth, with the onus being passed to developed markets to take over as locomotives. Really?! With an economic block the size of the Eurozone destined to flatline for years to come, or implode, and a US economy that will struggle to reach escape velocity as the Fed removes the punch bowl, this looks like a vain hope. Just look at the effect on the US housing market of even the suggestion of tapering and a 100 bp rise in mortgage rates this summer-and the housing recovery has played a very significant part in what meagre growth we have seen thus far.</p>
<p>Against this backdrop, Messrs. Osborne and Carney are beginning to look pretty lucky (and smart actually) with the UK fast becoming the stand-out developed economy performer. Growth is heading into 2014 at a healthy 3 to 4 per cent annualized clip, even in the face of Osborne’s austerity, which is another good story. In his 5 December Autumn Statement, I expect Chancellor Osborne to be able to announce that the OBR has made a £13bn reduction in its official forecast for the 2013/2014 government deficit, compared to its March forecast, i.e. 5.8 per cent of GDP, rather than 6.9 per cent, and also to make reductions in deficit forecasts for the future. I would also expect upward revisions to growth prognoses.</p>
<p>Governor Carney seems to be fully on-board in helping out the Chancellor, with repeated promises that rates will stay lower for longer than recent positive data surprises would otherwise suggest. Last week’s decision by the Bank of England to restrict its Funding for Lending Scheme to the provision of cheap liquidity to banks for business lending, rather than also for household mortgages, also implies a concrete, and rather subtle, message that the Bank will use macro-prudential tools to cool parts of the economy if it deems this necessary - and <em>not</em> conventional monetary tightening. This having been said, I’d say this change in policy will have negligible effect on the UK housing market, as cheap liquidity is currently plentiful anyway, and the government’s two Help to Buy schemes will be the real policy drivers of the housing market - eventually achieving the Nirvana of increased home building, as well as the feel-good factor from higher prices that British homeowners crave like the next heroin high. I would be extremely surprised if Help to Buy was altered at all before the next election in May 2015.</p>
<p>The real question is whether the UK can continue to thrive in the face of headwinds from Europe, Asia and possibly the US.</p>
</div></div></div>Wed, 04 Dec 2013 12:59:41 +0000Nick Beecroft199478 at http://www.newstatesman.comThe revolution according to Mary Berryhttp://www.newstatesman.com/business/2013/10/revolution-according-mary-berry
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>Democratic control over quantitative easing would be a welcome first step to my kind of revolution, writes Stewart Cowley.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/154000638.jpg?itok=mO-zOS8T" width="510" height="348" alt="Mary Berry." title="Mary Berry." /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Mary Berry - revolutionary? Not likely. Photograph: Getty Images.</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Hitler lived out his final days in the foothills of the Patagonian Andes pottering around his plantation in a gardening smock with Eva Braun. The Japanese are a quirky set of sexless robots too busy upgrading their manga subscriptions to care about producing the next generation. A new study of the Zapruder Film shows that, if you look carefully, it is actually the driver of the Dallas limousine who turns around and shoots JFK. And, finally, an actor/comedian/pop star says it would be nice if everybody had a nice life all of the time. You would have thought the world had a pleasing regular rhythm to it the way these stories rise and fall like dead fish from the bottom of the ocean.</p>
<p>These days, economics can only dream of this kind of regularity and rhythm. The rules of supply demand have all but disappeared from our lives. For instance, there was a day when, if the economy wasn’t so great and unemployment was high, prices would fall as both buyers and sellers of goods and services reacted rationally and adjusted their behavior accordingly. I distinctly remember haggling with a salesperson in Dixons during the recession of the early 1990s for a ten percent discount on the sticker value of sound system. And I got it.</p>
<p>But now none of this works. People in the UK are working harder than ever before but their real wages are increasing at a crawling pace of about one percent a year. The gap that is opening up is like nothing we have seen before and symptomatic of something very strange; economics has stopped working.</p>
<p>To fill the gap we have policies like Quantitative Easing, which pump-primes the economy with made up money, and schemes like Help To Buy, which attempts to reignite the problem that got us into this state in the first place. And it’s not like these policies are unique to the UK. The US, Europe, China and – above all – Japan are all doing the same. The result is a twisted and distorted system where the old rules of free market economics have simply broken down. If you were a physicist you would be wondering whether the speed of light really was constant.</p>
<p>Even attempts to revert to confrontational tribalism have stopped working. Russell Brand’s editorship of the New Statesman set me on edge waiting for Mary Berry to hold a press conference from the Claridges tearoom to call for the immediate redistribution of profits from the Great British Bake Off. But the social media response to Brand’s 4,500 word thesis was as incoherent as the original. There was much talk of the coming revolution but nobody on the left (defined only as those people who don’t see themselves ‘on the right’) could agree what it looked like. They had been led to the top of the mountain but there wasn’t anything there when they arrived – a basic error of leadership. The episode had the whiff of the scene in Citizen Smith when Robert Lindsay’s Wolfie was asked when the Tooting Popular Front’s revolution was starting – “About six, maybe half past depending on when everybody can get there.”</p>
<p>Meanwhile, in the real world, away from the undefined Utopia proclaimed from West End hotel rooms by multi-millionaire anarcho-syndicalists, the Unite Union had to climb down from the rejection of the INEOS rescue deal to save Grangemouth petrochemical plant faster than any shop steward has ever shouted “Everyone out!!!”. In the face of private capital, labour does not have an argument, least of all from union leaders who think the rhetoric of the 1970’s applies to the financial realities of today. The traditional negotiating voice of workers has dwindled to a whisper.</p>
<p><!--[if gte vml 1]><p><v:shapetype id="_x0000_t75"<br />
coordsize="21600,21600" o:spt="75" o:preferrelative="t" path="m@4@5l@4@11@9@11@9@5xe"<br />
filled="f" stroked="f"><br />
<v:stroke joinstyle="miter"/><br />
<v:formulas><br />
<v:f eqn="if lineDrawn pixelLineWidth 0"/><br />
<v:f eqn="sum @0 1 0"/><br />
<v:f eqn="sum 0 0 @1"/><br />
<v:f eqn="prod @2 1 2"/><br />
<v:f eqn="prod @3 21600 pixelWidth"/><br />
<v:f eqn="prod @3 21600 pixelHeight"/><br />
<v:f eqn="sum @0 0 1"/><br />
<v:f eqn="prod @6 1 2"/><br />
<v:f eqn="prod @7 21600 pixelWidth"/><br />
<v:f eqn="sum @8 21600 0"/><br />
<v:f eqn="prod @7 21600 pixelHeight"/><br />
<v:f eqn="sum @10 21600 0"/><br />
</v:formulas><br />
<v:path o:extrusionok="f" gradientshapeok="t" o:connecttype="rect"/><br />
<o:lock v:ext="edit" aspectratio="t"/><br />
</v:shapetype><v:shape id="Picture_x0020_1" o:spid="_x0000_s1026" type="#_x0000_t75"<br />
style='position:absolute;margin-left:52.2pt;margin-top:445.2pt;width:341.85pt;<br />
height:207.65pt;z-index:1;visibility:visible' wrapcoords="-47 0 -47 21522 21600 21522 21600 0 -47 0"><br />
<v:imagedata src="file:///C:\DOCUME~1\PHILIP~1.MAU\LOCALS~1\Temp\msohtml1\01\clip_image001.png"<br />
o:title=""/><br />
<w:wrap type="tight"/><br />
</v:shape><![endif]--></p>
<!--[if !vml]--><!--[endif]-->
<p><img alt="" src="/sites/default/files/images/graph.bmp" style="width: 510px; height: 386px;" /></p>
<p>We now have a twisted system of inadequate political and social responses to the financial crisis which says that we have learned nothing whatsoever from it – all we have done is to seek to dampen its effects so that we can avoid confronting it. At the same time, increasing calls for the post-crisis props to be extended and institutionalised is creating a democratic deficit – people now do not have a say in the things that really control their lives; there is no democratic control over QE for instance. By taking away the forces that would have, in previous times, allowed the recalibration of society we are brewing up a longer-term problem that leads you to an uncomfortable conclusion. If there was ever a time when free market forces should be allowed to let rip in a society it is now.</p>
</div></div></div>Tue, 29 Oct 2013 10:04:22 +0000Stewart Cowley198817 at http://www.newstatesman.comThe ECB's Asset Quality Review is a work of art - minimalist arthttp://www.newstatesman.com/business/2013/10/ecbs-asset-quality-review-work-art-minimalist-art
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>A masterpiece of reverse engineering.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/171478348.jpg?itok=S6sGm5LA" width="510" height="348" alt="Mario Draghi." title="Mario Draghi." /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Mario Draghi, president of the European Central Bank (ECB), earlier this year. Photograph: Getty Images.</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>In creating what was a potentially vital part of the project to keep the Euro afloat, the European Central Bank had a mission. They were to design a bank asset quality review that was just tough enough to gain credibility, but not too tough, for fear of scaring the horses and inducing queues of depositors to form outside banks when the results come out.</p>
<p>What we got was a masterpiece of reverse engineering, aimed at achieving just what was required - just enough. It can't be denied there are some tough-sounding parts, some tidbits of rectitude - an examination of gross liquidity ratios, excessive LTRO usage, and rigorous scrutiny of off-balance sheet exposures and the risk-weightings which banks choose to apply to their assets.</p>
<p>We are assured these matters will all receive diligent attention in the AQR, and may even lead to a subjective decision to raise the required capital ratio above the standard level of 7 per cent, (8 per cent for large, systemically important banks). Ok, sure, we'll wait and see what happens!</p>
<p>Very sensibly the AQR will take a Q4 2013 snapshot of balance sheets, so as to discourage banks from indulging in an unseemly fire sale of assets or reduction in customer loans by not giving them enough time to do so.</p>
<p>We even got some headmasterly rhetoric from Mario Draghi along the lines that we must have no fear, the AQR would be stringent enough so that some banks do actually fail, to ensure the process had credibility (preferably very small ones that have little chance of spreading contagion fear). He further insisted that governments must have a backstop in place. This was a thinly veiled tilt at Germany, who is in turn insisting that every cent is bled out of private bond and equity holders, of every possible description, first, before the European Stability Mechanism is tapped for bank re-capitalisation.</p>
<p>The trouble is, this AQR does very little to address the potentially lethal death embrace of banks and their governments that exists as a result of the banks' enormous holdings of sovereign bonds. This is to be expected: a proper risk-adjusted examination of the various hues of government bonds stuffed into banks' balance sheets, with realistic risk weightings, would be far too scary and if it ever saw the light of day, and might just bring the whole Tower of Babel crashing down.</p>
<p>So there were are, just enough to give the banks another year to de-leverage before the European Banking Authority stress tests and, with results not due for a year, just enough time for Germany to become satisfied with the ESM's rules of engagement.</p>
</div></div></div>Mon, 28 Oct 2013 14:48:47 +0000Nick Beecroft198810 at http://www.newstatesman.comRobo-trading: the superfast stockbroking strategy that affects your retirement fundshttp://www.newstatesman.com/2013/10/robo-traders-risky-business
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>Advocates of HFT argue that it provides additional liquidity and so narrows the gap between buying and selling prices. Yet when market conditions turn adverse, HFT firms can switch off their robo-traders and then liquidity vanishes – as we saw in the “fla</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/83186350.jpg?itok=jN5Kz9yD" width="510" height="348" alt="New Statesman" title="New Statesman" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Most financial assets are handled in a very different way to this nowadays. Image: Getty</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>The image of a crowded trading floor with brash young stockbrokers shouting into telephones has ceased to be representative of how most financial assets are traded. Most of today’s trading has migrated from trading floors to virtual electronic exchanges. The benefits include a more efficient system, because they provide liquidity and transparency, and also better price execution. However, in the past few years, an insidious new trend, “high-frequency trading” (HFT), has developed and is spreading stealthily.</p>
<p>A few critical factors explain the rapid development of HFT: the increase in computing power available to investment banks and trading firms, for example, and the deregulation of many stock exchanges in the United States and Europe.</p>
<p>HFT firms employ smart programmers to develop algorithms that can assess market conditions and enable computers to issue thousands of buy and sell orders automatically in less than a second. In this world, speed is everything. Certain exchanges are renting space to trading firms to allow them to locate their computers as close as possible to the exchanges, in order to reduce what is known as “latency”.</p>
<p>In another effort to obtain a speed advantage (of roughly six milliseconds), a dedicated transatlantic cable is being laid to connect London with New York.</p>
<p>Some exchanges are also selling real-time price information to the HFT firms, allowing the latter to obtain prior knowledge of order flow. This enables them to place buy or sell orders ahead of the average individual or institutional investor. (This is analogous to being in a line to buy tickets for the theatre and, as you approach the front of the queue, a tout appears ahead of you to buy the last ticket for, say, £30, then immediately sells it to you for £35.)</p>
<p>These speed and information advantages allow HFT firms to reap millions of dollars of low-risk profits by, in effect, “scalping” pennies off each trade. Because of the huge volume of trades, this adds up to billions of pounds overall.</p>
<p>So what does this mean for you and your retirement funds? Advocates of HFT argue that it provides additional liquidity and so narrows the gap between buying and selling prices.</p>
<p>Yet when market conditions turn adverse, HFT firms can switch off their robo-traders and then liquidity vanishes – as we saw in the “flash crash” of 6 May 2010, when the US market fell by 9 per cent in minutes. Even in normal market conditions, the algorithms used by HFT can increase the volatility of stock prices, which in turn affects the price for those investing your pension money.</p>
<p>What can be done? One simple idea is to limit trading firms’ ability to buy and sell in time increments of less than a second, or to impose a tax or tariff on trades that are held only for such a short time frame.</p>
<p>What is certain is that if nothing is done, pensioners who have saved all their working lives will lose out to the robo-traders that determine most of the current action in the stock markets.</p>
</div></div></div>Thu, 24 Oct 2013 14:01:58 +0000Simon Chapman198611 at http://www.newstatesman.comMoney by Felix Martin: Exposing the flaws in the way we think about moneyhttp://www.newstatesman.com/economics/2013/06/money-felix-martin-exposing-flaws-way-we-think-about-money
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>A fresh addition to the growing library of &quot;recession lit&quot;: one which delves into anthropology and ancient history to argue we will never understand the financial crisis with our current misguided perspective on money.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/135853146.jpg?itok=jXkuLgj6" width="510" height="348" alt="A man holds up an ancient banknote." title="Money." /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Adolfo Tovar, collector of old banknotes and coins, brandishing his treasures. Photograph: Getty Images.</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p align="center"><strong>Money: the Unauthorised Biography</strong><br />
Felix Martin<br /><em>Bodley Head, 336pp, £20</em></p>
<p>By now, one might have thought there was little to add to the literature of the “Great Recession”. But it keeps coming and some leading economic practitioners, notably the departing governor of the Bank of England, Mervyn King, argue that it will be three decades until we get the authoritative account. Many believe the best book on the 1929 meltdown was John Kenneth Galbraith’s <em>The Great Crash 1929</em>, published in 1955.</p>
<p>One of the biggest failings of modern-day economic and financial writing is a lack of historical perspective. When the run on Northern Rock caught the Bank of England and other regulators on the hop in August 2007, King established a recherché book club at his Notting Hill home in west London, where economists and economic historians gathered to discuss works on financial panics.</p>
<p>Felix Martin, an academic economist who now seeks to apply his knowledge in the financial world, reaches beyond conventional analysis in explaining the events that brought about the biggest disruption to finance and economic activity for more than a century. His core argument, reaching into anthropology and ancient history for support, is that classical economics – as exemplified by Adam Smith – misjudges the nature of money.</p>
<p>Smith and his cohorts saw money as commodity, based on gold, silver, copper or some other substance, that is used as a medium of exchange in commercial transactions. Martin does not disagree with this but views it as only part of the picture. He reaches into the primitive culture of the Pacific island of Yap and into the almost destroyed history of England’s Exchequer tallies: strips of willow on which non-monetary business transactions were recorded to understand the social technology of money.</p>
<p>What the author finds is enormously helpful in resolving some of the mystery behind the “Great Recession”. He found that physical coins and banknotes issued by central authorities such as the Bank of England tell only a fraction of the money story. The broader narrative is one of accounting: unseen transactions conducted privately among businesses and, in modern times, among banks without any notable intervention by central authorities. </p>
<p>These transactions are so vast and so much more important socially and commercially that they far outstrip the notes and coins in circulation and the officials bills and bonds issued by central bankers on behalf of governments. It is this enormous social edifice that was the hidden hand behind the “great panic” of 2007-08 that came close to bringing the whole banking and financial system down. Financiers took “social” banking to the ultimate degree, turning the dodgy physical product of sub-prime mortgages into exotic securities. </p>
<p>When it came to stabilising the financial system, the traditional central banking solution of providing temporary cash (lender of last resort money) in exchange for bills or securities, was inadequate to the task. The banks needed recapitalisation to restore solvency, and only the “sovereigns” – national governments – were adequate to the task. In the US the capital injections came to 4.5 per cent of GDP or the size of the vast US defence budget; in Britain, with its bloated financial sector, the sovereign bailout was 8.8 per cent of GDP and in Ireland it reached 40 per cent. Bank debt, at a stroke, had been socialised and politicised.</p>
<p>The virtue of Martin’s book is that it exposes the deep flaws in the way we have traditionally thought about money. The exposition is clear, unlike most jargon-filled economic texts. But this book could have done with some tighter editing. The flow is interrupted by clunky transitions from the ancient to the modern, interspersed with attempts at a conservational, over-a-drink style. Nevertheless, it provides a fresh understanding of its subject.</p>
<p><em>Alex Brummer is city editor of the Daily Mail and the author of “Britain for Sale”</em></p>
</div></div></div>Sat, 15 Jun 2013 11:00:00 +0000Alex Brummer195500 at http://www.newstatesman.comFitch agency downgrades UK credit rating from AAA to AA+http://www.newstatesman.com/business/2013/04/fitch-agency-downgrades-uk-credit-rating-aaa-aa
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>More trouble for &quot;downgraded Chancellor&quot; George Osborne.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/160223106.jpg?itok=EO1WAvdN" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">George Osborne stares at a wheel. Photo: Getty</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>The Fitch agency has joined Moody's in downgrading Britain's credit rating, citing a "weaker economic and fiscal outlook".</p>
<p>The country has moved from AAA, the top rating, to AA+. However, Fitch says that outlook is now "stable" meaning that Britain is unlikely to be downgraded further. (The third agency, Standard &amp; Poor's, still gives Britain a triple-A score.)</p>
<p>As Staggers editor George Eaton noted when Moody's downgraded Britain, George Osborne repeatedly staked his economic credibility of the views of the ratings agencies when the coalition came to power. <a href="http://www.newstatesman.com/politics/2013/02/osborne-humiliated-uk-loses-aaa-credit-rating" target="_blank">He wrote</a>:</p>
<blockquote><p>For Osborne, who chose to make our credit rating the ultimate metric of economic stability, it is a humiliating moment. Not my words, but his. During one of his rhetorical assaults against Labour in August 2009, he warned: "Britain faces the humiliating possibility of losing its international credit rating". Rarely before or after becoming Chancellor, did Osborne miss an opportunity to remind us just how important he thought the retention of our AAA rating was.</p>
</blockquote>
<p>The Treasury responded to the news by reaffirming its commitment to austerity in the name of deficit reduction. <a href="http://www.bbc.co.uk/news/business-22219382" target="_blank">A spokesperson told the BBC:</a></p>
<blockquote><p>"This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.</p>
<p>"Fitch themselves say the government's 'continued policy commitment to reducing the underlying budget deficit' is one of the main reasons UK debt now has a 'stable' outlook.</p>
<p>"Though it is taking time, we are fixing this country's economic problems. The deficit is down by a third (since 2010), a million and a quarter new private sector jobs have been created and the credibility we have earned means households and businesses are benefitting from near record low interest rates."</p>
</blockquote>
<p>However, as the <em>New Statesman</em>'s economics editor - and former member of the Bank of England's Monetary Policy committee - <a href="http://www.newstatesman.com/economics/economics/2013/03/budget-was-osbornes-last-hurrah-%E2%80%93-and-now-he-can-only-hope-good-times" target="_blank">David Blanchflower wrote in March</a>:</p>
<blockquote><p>Our downgraded Chancellor lost the UK’s triple-A credit rating because he has delivered neither on growth nor on the deficit. In June 2010, the Office for Budget Responsibility (OBR) forecast that growth in the UK would be 2.3 per cent in 2011 and 2.8 per cent in 2012. What we got was 0.9 per cent and -0.1 per cent.</p>
<p>The government hasn’t dealt with the country’s debts – far from it. The coalition has boasted so many times that it has reduced the deficit by a quarter but the reality is that this was done primarily by slashing capital spending, which has had a devastating impact on the construction industry. And the deficit is now rising, as was confirmed in the 20 March Budget.</p>
</blockquote>
</div></div></div>Sat, 20 Apr 2013 07:56:12 +0000Helen Lewis194429 at http://www.newstatesman.comWhat should economists and policy makers learn from the financial crisis?http://www.newstatesman.com/economics/2013/03/what-should-economists-and-policy-makers-learn-financial-crisis
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>Ben Bernanke, Mervyn King, Larry Summers, Olivier Blanchard and Axel A. Weber talk at the LSE about the lessons of the crash.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/ben_bernanke.jpg?itok=5cvts96a" width="510" height="348" alt="Ben Bernanke" title="Ben Bernanke" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">US Federal Reserve Chairman Ben Bernanke speaking at the LSE on 25 March, 2013. (Photo: Getty Images)</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>They packed us in like late boarders on a budget flight. I shuffled shoulder-to-shoulder down the narrow passage between the rows of folding chairs in the LSE’s Old Theatre, where in an hour’s time Mervyn King would take the stage with Ben Bernanke, Larry Summers, Olivier Blanchard and Axel A. Weber to discuss the financial crisis.</p>
<p>A returns queue stretched out the door and back into the main lobby where students camped with blankets. I took my seat beside a young man clutching the syllabus of his development economics course while another, to my left, texted Chinese characters. Mobile phones and open laptops flickered like moths in the lamplight as the audience waited.</p>
<p>Anticipation hung in the air and it wasn’t surprising. Since the UK Budget and the crisis in Cyprus it seems that “policy makers” have grown complacent to inflicting pain and, when faced with protests, comfortable with popping in their earplugs. Although the US has embraced stimulus, the country has accrued debt in exchange for small boosts in growth, while some figures point towards the bank bailout (over which Bernanke presided) costing the country 20 times as much as it did in the UK.</p>
<p>Would the outgoing governor of the Bank of England (King), the Chairman of the Federal Reserve (Bernanke), the chief economist of the IMF (Blanchard) a foremost central banker (Weber) and a former US Treasurer (Summers) offer optimism to a jilted audience? It was hardly <em>Question Time</em>, but there was a sense that we deserved some answers.</p>
<p>The esteemed panel didn’t offer much in the way of revolutionary talk, but humility and an openness to change both arrived as common themes. Each offered filial praise to King, who will step down as BOE governor in June. (Summers credited him with both the industry's most formidable intellect and elegant accent).</p>
<p>For Ben Bernanke, who spoke first, this financial crisis was “a classic” but also “novel” in the complexity of its aftermath. Bernanke’s pet project is the Great Depression and he drew insight from looking back to the other American-born crisis that left the world reeling, and the subsequent currency fluctuations associated with the dropping of the gold standard, which Britain abandoned in 1931. As head of the Fed during the Wall Street crash, Bernanke has been criticised for buying up the troubled assets of AIG and Merrill Lynch. While a lesson in economic histories is fascinating, I couldn’t help feeling he’d shirked the more riveting contemporary account many were hoping for.</p>
<p>The closest he came to outlining an actionable “policy” was an encouragement of “domestic objectives” achieved through “domestic tools”, discouraging emerging markets which rely too heavily on exports. Fair point: as we’ve seen, demand is less an abundant meadow so much as a grassy cliff on the other side of which lies a self-sufficiency void. It’s wise to be sceptical of heavy capital investment in export processing zones, inherently vulnerable to demand bubbles, but is that <em>really</em> possible in a globalised world? It’s hard to imagine corporations pulling back from cheap labour, or the governments of sweatshop nations turning them away. Export-based economies are often touted as the cure-all investment for third world poverty (think of Bangladesh and post-quake Haiti) and foolish as that may be, until economists put forward a real alternative it seems unlikely to change.</p>
<p>Olivier Blanchard, speaking next, managed to charm with his five take-away lessons to be learned from the crisis: 1. Humility (economists got it wrong); 2. The importance of detail (the minutia of financial systems matter); 3. Interconnectedness (the world is one big economic family); 4. Macroprudential reform (better risk management) 5. The re-examination of central banking (how free should they be to set their own rates?).</p>
<p>Such decent and technical points will surely keep the generation of future economists filling the seats beside me busy – but the most important sting was the first. Blanchard spoke eloquently on the myth of progress (<a href="http://www.newstatesman.com/philosophy/2009/04/john-gray-enlightenment-world" target="_blank">some people already knew</a>) and the myriad problems associated with a rhetoric of upward ascension. It is true and terrifying that economists often forget we aren’t just getting better and better at doing things – and that history often repeats itself.</p>
<p>General conclusions drawn by all were that the crisis will force a reconstruction of macroeconomics and redefine the role of central banks. Though none seemed keen to embrace the policies of frugality (and implicitly backed a Keynesian approached to recovery), the evening lacked the damning tone towards austerity which would have pleased many listeners.</p>
<p>It was left to a nasal Larry Summers to do most of the plain talking; speaking in lofty, maple syrup-coated sentences. While the panel debated how they would each reconstruct macroeconomics, Summers chipped in:</p>
<blockquote><p>I think there’s a central question: do we define macroeconomics as being about... cyclical fluctuations around something that was determined someplace else, where the goal – if you were successful – was to reduce their amplitude, <em>or</em> as tragic accidents where millions more are unemployed at costs of trillions of dollars that are avoidable with more satisfactory economic arrangements?</p>
<p>Until we adopt the second vision I think we are missing our principal opportunity to achieve human betterment. And as long as this question is conceptualised as ‘<em>what new friction should we insert into the existing model’</em> I don’t think we’re gonna get to the kind of perspective that I’m advocating.</p>
</blockquote>
<p>Economics is perhaps the eeriest of sciences: a lingering, omnipresent force without big bangs or supernovas or medical breakthroughs, but rather a complex and continually shifting clockwork that occasional implodes and shakes the world to its foundation.</p>
<p>For all but the economically adroit (I include myself with the amateurs), a lecture such as this haemorrhages hope like a picked scab. The distance between the policy makers and the people, from their academic language to their casual in-jokes and lack of clear solutions, is troubling. Should it have been a grave affair? Perhaps not, but it would be nice to see someone look a little scared. Down here in the audience, things don’t feel so relaxed.</p>
<p><em>To hear a podcast or to watch a video of this lecture <a href="http://www2.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=1856" target="_blank">click here</a></em>.</p>
</div></div></div>Sun, 31 Mar 2013 08:22:37 +0000Charlotte Simmonds193950 at http://www.newstatesman.comBitcoin: this is what a bubble looks likehttp://www.newstatesman.com/economics/2013/03/bitcoin-what-bubble-looks
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>Not if, but when, the bubble will burst.</p>
</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>This is what a bubble looks like:</p>
<p><img alt="" src="/sites/default/files/images/Screen%20Shot%202013-03-14%20at%2015_33_23.png" style="height: 300px; width: 511px; " title="" /></p>
<p>That's the market capitalisation of Bitcoin, an innovative fiat currency which relies on some fancy cryptography to create a perfectly decentralised and unhackable store of value. The graph shows the total value of all bitcoins in circulation — and it's currently peaking at a little over half a billion dollars.</p>
<p>In a sense, Bitcoins are the ultimate fiat currency. There is absolutely nothing valuable about them except the extent to which others are prepared to take them as payment for goods and services. The willingness relies on a certain level of trust that the currency will stay a useful store of value, measure of exchange and unit of account in the near future; but whereas normal currencies derive the trust from the fact that they are backed up by respectable governments and independent central banks, Bitcoin derives it from a complex, and essentially permanent, set of rules which issue new bit coins at a steadily declining rate until the early 22nd century, when the total quantity of bitcoins in circulation will be fixed forever.</p>
<p>Currently, bitcoin is very useful for fringe-legal transactions, and as a digital-native currency, it has potential to be used in a wide array of web services. But that's not why the value of the total economy has more than tripled since January. For that, look to lessons we learned over four hundred years ago.</p>
<p>The South Sea bubble is one of the most famous boom-and-bust cycles in history. At the peak of the madness, famously, a huckster appeared public advertising stock in "a company for carrying out an undertaking of great advantage, but nobody to know what it is". Naturally, he disappeared soon after.</p>
<p>But looking back at contemporary sources reveals something else which is just as important: very few people caught up in the madness thought that they were buying something innately valuable. These weren't naïve investors spending exorbitant sums on stock which they thought would vest unrealistic rewards; instead, they knew full well the bubble they were buying into, but thought that they could sell out of it at profit before the whole thing came crashing down. Some did; but inevitably, many others failed.</p>
<p>Much the same seems to be at play in the Bitcoin ecosystem. It's not just people like Hugo Rifkind, <a href="http://www.spectator.co.uk/columnists/hugo-rifkind/8864351/my-new-uneasiness-at-some-old-fashioned-flirting/" title="http://www.spectator.co.uk/columnists/hugo-rifkind/8864351/my-new-uneasiness-at-some-old-fashioned-flirting/">who accidentally made £41 from his foray into bit coin investing</a>; Timothy Lee, a writer for Ars Technica, holds nearly a tenth of his investment portfolio in bitcoin, <a href="https://twitter.com/binarybits/status/309332012202881024" title="https://twitter.com/binarybits/status/309332012202881024">having bought in last January and seen a ten-fold increase in value</a>.</p>
<p>But while there's been a massive increase in bitcoin price, there's not been anywhere near an equivalent increase in the currency's use. A glance at <a href="http://blockchain.info" title="http://blockchain.info">blockchain.info</a>, which displays all transactions, shows that the vast majority of bitcoin transactions—by number, if not by value—are made at the site SatoshiDICE, a gambling organisation. In fact, the ever-increasing value of bitcoins is like to act as to depress the bitcoin economy, as people decide to hold on to their money rather than exchange it for services, knowing that it will surely increase in value.</p>
<p>The crash will come. At the heady peaks it's at right now, only the slightest spark will be required to turn the trend negative. In 2011, the previous bubble burst when Mt Gox, then the most popular bureau d'exchange for the fledgeling currency, <a href="http://techcrunch.com/2011/06/19/the-bitcoin-trials-continue-mt-gox-exchange-collapses-due-to-compromised-account/" title="http://techcrunch.com/2011/06/19/the-bitcoin-trials-continue-mt-gox-exchange-collapses-due-to-compromised-account/">was disastrously hacked</a>. This time, I doubt it would take that. The peaks are so high, and so many people have so much money "invested" in the currency, that the rush to be the first out of a bear market will be vicious to behold.</p>
</div></div></div>Thu, 14 Mar 2013 17:00:26 +0000Alex Hern193576 at http://www.newstatesman.comDow Jones nearing an all-time high. So what?http://www.newstatesman.com/economics/2013/03/dow-jones-nearing-all-time-high-so-what
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>The Dow is a silly index for silly people. Pay no heed.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/102299549.jpg?itok=8atrLDDW" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Photograph: Getty Images</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Today could be the day the Dow Jones Industrial Average hits its highest ever mark. And it won't mean a thing.</p>
<p>The DJIA—commonly referred to as just the "Dow"—is one of the most important stock market indexes in America. With the S&amp;P 500 and Nasdaq, it's a useful proxy for the health of American business. When the Dow's up, times are good; when it's down, hold on to your hats.</p>
<p>Later today, <a href="http://www.businessinsider.com/will-the-dow-jones-hit-an-all-time-high-today-2013-3" title="http://www.businessinsider.com/will-the-dow-jones-hit-an-all-time-high-today-2013-3">it's expected that the Dow will break 14,164.53</a>, the all-time high reached on Oct 9, 2007. It closed at 14,127.82 yesterday, and a slew of "good" reports from Europe—where French, German and UK PMIs came in higher than expected, albeit still signalling contraction for the former—as well as futures contracts due to vest today indicate that nows the time it will break that barrier.</p>
<p>But even if it does, it's a meaningless milestone. Due to the way the Dow is put together, the two marks aren't comparable. So while you will read stories about how "the American market has recovered", they may or may not be true—and this says nothing either way.</p>
<p><a href="http://blog.adamnash.com/2012/02/13/apple-cisco-dow-15000/" title="http://blog.adamnash.com/2012/02/13/apple-cisco-dow-15000/">Adam Nash describes the problem</a>:</p>
<blockquote><p><a href="http://money.cnn.com/data/dow30/" title="http://money.cnn.com/data/dow30/">Just thirty stocks</a>, hand picked by committee by Dow Jones, with no rigorous requirements. Worse, it’s a “price-weighted” index, which is mathematically nonsensical. When calculating the Dow Jones Industrial Average, they take the actual stock prices of each stock, add them together, and divide them by a “<a href="http://en.wikipedia.org/wiki/DJIA_divisor" title="http://en.wikipedia.org/wiki/DJIA_divisor">Dow Divisor</a>“. They don’t take into account how many shares outstanding; they don’t assess the market capitalization of each company. When a stock splits, they actually change the divisor for the whole index. It’s completely unclear what this index is designed to measure, other than financial illiteracy.</p>
<p>In fact, there is only one justification for the Dow Jones Industrial Average being calculated this way. Dow Jones explains it in this post on <a href="http://blog.djindexes.com/index.php/why-aapl-and-goog-arent-in-the-dow/" title="http://blog.djindexes.com/index.php/why-aapl-and-goog-arent-in-the-dow/">why Apple &amp; Google are not included in the index</a>. To save you some time, I’ll summarize: they have always done it this way, and if they change it, then they won’t be able to compare today’s nonsensical index to the nonsensical index from the last 100+ years.</p>
</blockquote>
<p>The end result is that, as Nash points out, the Dow is only "off its highs" of 2007 because of it made one arbitrary decision rather than another. If Apple had been introduced to the index in 2009 rather than Cisco, the Dow would have broken its high well over a year ago. It would have been nonsensical to report that then; and it's still nonsensical to care now.</p>
</div></div></div>Tue, 05 Mar 2013 12:18:55 +0000Alex Hern193305 at http://www.newstatesman.comGovernment Bond Markets: Unfeeling Psychopaths or Rational Keynesians?http://www.newstatesman.com/business/2013/02/government-bond-markets-unfeeling-psychopaths-or-rational-keynesians
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>We&#039;re blaming the fire alarm for the fire.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/96321021.jpg?itok=1rNfDxPE" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Xavier Rolet, the Chief Executive of the London Stock Exchange, poses for photographs in front of giant letter blocks spelling the word 'Bonds'. Photograph: Getty Images</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>With the latest round of “markets can’t handle democracy” after a minor selloff in BTPs (Italian government bonds) following their election, the idea that “government finance is too important to be left to the markets” is emerging from the swamp of Guardian comment threads, and shambling back into the mainstream. With all but a few Austrian dead-enders acknowledging that austerity has been disastrous for growth, the accusation of market culpability is a serious one.</p>
<p>The case for the prosecution is that government bond markets irrationally panicked at modest debt increases following the 2008 financial crisis, demanding appeasement in the form of “austerity”, ideally targeted at the poor and vulnerable. (One may need to sprinkle the preceding sentence with the word “neoliberal” to get the full flavour). This case was made most recently in a <a href="http://www.voxeu.org/article/panic-driven-austerity-eurozone-and-its-implications">paper</a> by Paul DeGrauwe of VoxEu, and is noticeable for attracting sympathetic comments from <a href="http://coppolacomment.blogspot.co.uk/2013/02/a-central-bank-crisis.html">normally </a><a href="http://krugman.blogs.nytimes.com/2013/02/22/paul-de-grauwe-and-the-rehn-of-terror/?smid=tw-share">sensible</a><a href="http://www.newstatesman.com/economics/2013/02/how-austerity-was-based-market-panic"> people</a>.</p>
<p>Professor DeGrauwe argues convincingly that the countries which instigated the largest austerity programmes suffered the worst damage from markets in terms of both quantity and price of fresh borrowing (his Figure 1 below). He goes on to note that none of the austerity measures introduced pacified markets.</p>
<p>He draws the slightly eccentric conclusion from this that markets love and demand austerity. Possibly for reasons of space he omits that the two biggest rallies in EU peripheral sovereign debt before the ECB’s Outright Monetary Transactions (OMT) were driven by monetary actions—the injection of ECB liquidity into the market via SMP and later LTRO. But he does note that the prospect of unlimited monetary intervention by the ECB in the form of OMT is what appears to have convinced markets that investing in the periphery is safe.</p>
<p class="rtecenter" style=""><img alt="" src="/sites/default/files/images/degrauwe_fig1(1).png" style="width: 400px; height: 300px; " /></p>
<p>So there you have it: fiscal measures did nothing to convince markets to buy peripheral debt; monetary measures were repeatedly successful.</p>
<p>Yet the conclusion drawn is that:</p>
<blockquote><p>Austerity dynamics were forced by fear and panic that erupted in the financial markets and then gripped policymakers.</p>
</blockquote>
<p><a href="http://pawelmorski.files.wordpress.com/2013/02/sg2013022763671.gif"><img alt="What worked: hint - not austerity" class="size-large wp-image-7" originalh="350" originalw="490" scale="2" src="/sites/default/files/images/sg2013022763671.gif" src-orig="http://pawelmorski.files.wordpress.com/2013/02/sg2013022763671.gif?w=490&amp;h=350" style="margin: 0px; padding: 4px 0px; border-width: 0px; outline: 0px; vertical-align: baseline; background-image: none; max-width: 100%; height: 365px; width: 510px; " /></a></p>
<p><em>What worked: hint – not austerity.</em></p>
<p>Panic is a funny word. Jumping out of a moving bus can look like panic. However, if the driver—let’s call him Jean-Claude—is absolutely adamant that he wants to drive said bus off a cliff (think of M. Trichet’s threats to pull the repo-able status of Greek debt and later refusal to allow the ECB to get involved in a rescue), and the conductor (Wolfgang) is similarly vehement about fiscal assistance—jumping out starts to look quite rational. The ECB (especially) and the core countries spent most of 2010–mid-2012 declaring an absolute refusal to assist the peripheral nations. As a result, Europe’s money supply began to resemble a badly-sloping field, where all the liquidity is drained from one end (the periphery) and swamps the core.</p>
<p><img alt="" src="/sites/default/files/images/cs-chart.png" style="width: 510px; height: 302px; " /></p>
<p><em>Where’d all the money go?</em></p>
<p>The huge underperformance of peripheral growth owes at least as much to monetary as to fiscal factors. Hence, despite the UK’s utterly dire fiscal performance—and misguided austerity, my homeland never suffered remotely the sort of spread explosion that Euroland saw. Similarly, Denmark—even whilst retaining a peg to the Euro—didn’t suffer contagion. The “panic” Professor DeGrauwe refers to looks a lot more like a rational response to a thoroughly dysfunctional system. The end of this panic coincided nicely with the introduction of monetary measure—the OMT—with the potential to provide Italy with the sort of central bank support that the UK has enjoyed.</p>
<p><img alt="" src="/sites/default/files/images/budget_deficit_and_public_debt_to_gdp_in_2009_for_selected_eu_members.png" style="width: 510px; height: 383px; " /></p>
<p><em>From Wikipedia. Look, I’m busy.</em></p>
<p>In this case, blaming the markets is actually blaming the alarm for the fire, and measures to control spread volatility like measures to prevent fire casualties by removing the alarms. Professor Paul Krugman has been vocal about the indisputable absence of “bond vigilantes” from markets spared the various monetary perversions that Euroland is subject to. The fit between spreads and recession looks a whole lot worse once you include countries which aren’t in the Euro. Looking at the above chart, lifted off <a href="http://en.wikipedia.org/wiki/File:Budget_Deficit_and_Public_Debt_to_GDP_in_2009_%28for_selected_EU_Members%29.png">Wikipedia</a>, UK fundamentals nestle in the middle of a group of countries which were in deep trouble, whereas Japan has so much debt it’s literally off the scale of the chart (at 230 per cent of GDP). But neither has seen any significant rise at all it its credit spreads. I suggest therefore that Eurowonks stop throwing stones in glass houses.</p>
<p><a href="http://pawelmorski.wordpress.com/2013/02/27/government-bond-markets-unfeeling-psychopaths-or-rational-keynesians/" target="_blank"><em>This piece was originally posted on </em>Some Of It Was True…</a><em>, and is reposted with permission.</em></p>
</div></div></div>Thu, 28 Feb 2013 09:45:53 +0000Pawe? Morski193192 at http://www.newstatesman.comHas the pound turned the corner against the Euro?http://www.newstatesman.com/economics/2013/02/has-pound-turned-corner-against-euro
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>As the Italian &lt;em&gt;tuttishambles&lt;/em&gt; starts to bite, the currency wars get interesting.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/98835610.jpg?itok=-hPHRY2H" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Photograph: Getty Images</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Yesterday saw morning saw a mild spike in the EUR/GBP exchange rate, peaking at £0.8807 to the euro before <a href="http://www.newstatesman.com/business/2013/02/just-how-scary-news-italy" target="_blank">the results of the Italian election started to become clear</a> and the Euro <em>collapsed</em>:</p>
<p> </p>
<p><img alt="" src="/sites/default/files/images/Screen%20Shot%202013-02-26%20at%2011_44_43.png" style="width: 510px; height: 183px; " /></p>
<p>The spike was widely attributed to the Moody's downgrade, and, insofar as any single cause can be found, it probably was. But it was reported very differently depending on how important the downgrade was felt to be. For instance, <a href="http://www.newstatesman.com/business/2013/02/markets-react-uk-downgrade-doing-basically-nothing" title="http://www.newstatesman.com/business/2013/02/markets-react-uk-downgrade-doing-basically-nothing">whereas I wrote that</a> the pound was "only slightly down against the Euro", <a href="https://twitter.com/lawsandaverages/status/306046032410726400" title="https://twitter.com/lawsandaverages/status/306046032410726400">others</a> framed the same information as "a new 52-week low".</p>
<p>Both are, of course, true. The pound hit its peak against the Euro last July and has been steadily declining ever since:</p>
<p> </p>
<p><img alt="" src="/sites/default/files/images/Screen%20Shot%202013-02-26%20at%2012_00_54.png" style="width: 510px; height: 183px; " /></p>
<p>Even after improving against the Euro on the back of the news from Italy, you would still have to go back over a year to find the last time before 2013 when the EUR/GBP was so high:</p>
<p><img alt="" src="/sites/default/files/images/Screen%20Shot%202013-02-26%20at%2012_04_29.png" style="width: 510px; height: 181px; " /></p>
<p>So when we say "the pound hit a 52 week low" after the Moody's downgrade, it's technically correct, but only gets the truth across if you bear in mind that the pound also hit a 52 week low <em>before</em> the Moody's downgrade.</p>
<p>In part, that continued collapse is to do with matters beyond the control of British policy. Until recently, the currency was a safe haven, isolated from the contusions of the eurozone and the US fiscal cliff. That boosted it higher than its resting level, and as the fiscal cliff was sorted and the dust cleared revealing a eurozone still standing.</p>
<p>But it's also an artefact of the growing evidence that the Bank of England is prepared to put up with significantly higher inflation than normal, as well as the perennial driver of all Britain's economic fortunes, our anaemic growth.</p>
<p>In a way, despite the focus on Japan's increasingly aggressive attempts to drive down the yen, it's us who are actually winning the currency wars. The problem is that we aren't getting a huge amount for our victory. Despite what theory says ought to happen, Britain's exports remain flat, and our homegrown industry isn't seeing any benefit either. Meanwhile, the cost of living for Brits soars correspondingly.</p>
<p>It you're looking for the upside of the Italian <em>tuttishambles</em>, then, it's that: your imported truffles and holidays to the French Riviera will finally start to come back down in price.</p>
<p>What do you mean you don't import truffles?</p>
</div></div></div>Tue, 26 Feb 2013 12:33:39 +0000Alex Hern193120 at http://www.newstatesman.comJapan: "We'd never buy foreign bonds (we might buy foreign bonds)"http://www.newstatesman.com/economics/2013/02/japan-wed-never-buy-foreign-bonds-we-might-buy-foreign-bonds
<div class="field field-name-field-subheadline field-type-text-long field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even"><p>Abe puts the squeeze on the BoJ.</p>
</div></div></div><div class="field field-name-field-node-image field-type-image field-label-hidden view-mode-fulltext"><div class="field-items"><figure class="clearfix field-item even"><img typeof="foaf:Image" class="image-style-fullnode-image" src="http://www.newstatesman.com/sites/default/files/styles/fullnode_image/public/articles_2013/90187260.jpg?itok=-ZL-dMMz" width="510" height="348" alt="" /></figure></div></div><div class="field field-name-field-nodeimage-title field-type-text field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even">Photograph: Getty Images</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden view-mode-fulltext"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Even Japan has limits to what it will do in a currency war. The country's finance minister, Taro Aso, <a href="http://www.bloomberg.com/news/2013-02-19/aso-says-japan-not-planning-to-buy-foreign-bonds-through-fund.html" title="http://www.bloomberg.com/news/2013-02-19/aso-says-japan-not-planning-to-buy-foreign-bonds-through-fund.html">has confirmed</a> that the nation has no plans to buy foreign bonds through the Bank of Japan.</p>
<p>The denial is a slight walking-back of the words of the Prime Minister Shinzo Abe last night, <a href="http://online.wsj.com/article/SB10001424127887323495104578310994288881764.html" title="http://online.wsj.com/article/SB10001424127887323495104578310994288881764.html">who noted</a> — without saying what he actually thought on the subject — that "there are views calling for foreign-bond purchases".</p>
<p>Abe had been discussing the recently revised inflation mandate for the Bank of Japan in parliament when opposition MPs asked him what the bank is actually planning to do to back up its target. Without confirming any particular policy route, Abe named a number of potential unconventional measures, saying that "I hope the BoJ will take effective policy steps that would contribute to overcoming deflation."</p>
<p>The BoJ has every motivation to fight deflation; in the same debate, Abe threatened it with a change in law, saying:</p>
<blockquote><p>It would be necessary to proceed with revising the BOJ law if the central bank cannot produce results under its own mandate.</p>
</blockquote>
<p>While Abe has, for the most part, been content to let the Bank pick its own methods so long as it results in reflation, Aso's comments this morning imply there are limits. <a href="http://www.bloomberg.com/news/2013-02-19/aso-says-japan-not-planning-to-buy-foreign-bonds-through-fund.html" title="http://www.bloomberg.com/news/2013-02-19/aso-says-japan-not-planning-to-buy-foreign-bonds-through-fund.html">Bloomberg's Mayumi Otsuma puts the talking-back in context</a>:</p>
<blockquote><p>Economy Minister Akira Amari told reporters today that Abe’s comments referred to buying foreign bonds as a general policy idea that is available to any country.</p>
</blockquote>
<p>It seems likely that the skittishness of the Japanese cabinet is related to the G20's stand on currency manipulation, which was finally clarified after <a href="http://www.newstatesman.com/economics/2013/02/g7-japan-fine-no-not-fine-other-one-concerning-japan-concerning" title="http://www.newstatesman.com/economics/2013/02/g7-japan-fine-no-not-fine-other-one-concerning-japan-concerning">last week's mild confusion</a>. The group is <a href="http://www.newstatesman.com/business/2013/02/g7shambles-continues" title="http://www.newstatesman.com/business/2013/02/g7shambles-continues">definitely (maybe) against currency manipulation</a>. And while much of what Japan is doing is clearly aimed at affecting the Yen in international markets, it's also capable of being viewed as simple unconventional monetary policy aimed at having a domestic effect. Buying foreign bonds would render that charade a lot harder to pull off, and could lead to some awkward conversations in Moscow this weekend.</p>
</div></div></div>Tue, 19 Feb 2013 08:05:11 +0000Alex Hern192905 at http://www.newstatesman.com